What Is the IRS ERC Settlement Program?

The Employee Retention Credit (ERC) Voluntary Disclosure Program was a specific initiative created by the Internal Revenue Service (IRS). Its primary function was to offer a structured pathway for businesses that may have incorrectly claimed the ERC to report their error. This allowed them to rectify the mistake under defined terms and avoid potentially more significant consequences. The program was developed in response to widespread and often misleading marketing campaigns that encouraged many ineligible businesses to file for the credit.

The initiative provided a necessary option for employers who were misled into applying for the ERC and now wished to correct their tax filings. It was one component of a broader IRS strategy to address the proliferation of erroneous claims. This larger effort included sending letters with proposed tax adjustments to businesses that claimed the credit and intensifying audit and criminal investigation work related to ERC abuse. The disclosure program was distinct from a separate withdrawal process for those with pending, unpaid ERC claims.

Eligibility for the Program

Participation in the ERC Voluntary Disclosure Program was limited to a specific group of taxpayers who wished to proactively correct a previous filing. A fundamental requirement was that the business must have already filed for the ERC and received the payment, either as a direct refund that was cashed or deposited, or as a credit applied to a tax period. The program was designed for those who believed they were not actually entitled to the credit they received.

The program was not available to businesses that were already on the IRS’s radar for this specific issue. An employer could not apply if they were under an employment tax examination by the IRS for the tax period in which the ERC was claimed. Similarly, if the business had been notified that it was under a criminal investigation by the IRS, it was ineligible to participate. The program was also closed to any taxpayer who had already received a notice or letter from the IRS demanding repayment or disallowing the credit. If a third-party payer, such as a professional employer organization, filed the employment tax return and claimed the credit on behalf of the business, the business could only participate through that same third-party payer.

Key Terms of the Settlement

The ERC Voluntary Disclosure Program offered specific financial incentives to encourage businesses to come forward. A central component was the reduced repayment amount. Under the first version of the program, which closed in March 2024, participants were required to repay 80% of the credit they received. A second, more limited program that closed in November 2024 required repayment of 85% of the credit. This discount acknowledged that many businesses had paid a significant percentage of their credit to promoters as a contingency fee.

A benefit of the program was the waiver of penalties and interest on the portion of the credit being repaid. Under normal circumstances, the IRS would assess penalties and interest on improperly claimed credits, but these were completely forgiven for those accepted into the program. Furthermore, if the business received interest from the IRS on its original ERC refund, the taxpayer was permitted to keep that interest payment and did not have to return it.

Acceptance into the program provided finality for the tax periods in question. Once a business signed the closing agreement and fulfilled its terms, the IRS would not pursue an employment tax audit for the ERC that was resolved through the program.

Information and Forms Needed to Apply

To participate in the program while it was active, businesses had to complete and submit Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. Before starting the application, it was necessary to gather specific information to ensure the form could be filled out accurately and completely. This preparation was a detailed step that required careful review of financial and tax records related to the original ERC claim. A part of the application was providing detailed information about the tax advisor or promoter who encouraged or assisted with the ERC claim. Applicants needed to provide:

• The legal business name, Employer Identification Number (EIN), and current address.
• A breakdown of the improper ERC claim by specific tax periods, identifying each calendar quarter and the exact amount of the credit associated with each of those periods.
• The calculated repayment amount, which was a percentage of the total ERC received.
• The name, address, and telephone number of the individual or firm who assisted with the claim, along with details about the services they provided.

The Application and Resolution Process

The primary method for submission was through the IRS Document Upload Tool, a secure online portal for transmitting tax documents directly to the agency. Alternatively, the form could be submitted by mail to the address specified in the IRS instructions for the program. After the IRS received an application, it would review the submission to ensure the applicant met all eligibility requirements.

If the IRS approved an application, it did not immediately request payment. Instead, the agency would mail the applicant a closing agreement, which was Form 906. This document formally outlined the terms of the settlement between the taxpayer and the IRS, providing a binding resolution to the matter.

The applicant had to carefully review, sign, and return the closing agreement by the deadline specified in the document. Only after the closing agreement was executed by both the taxpayer and the IRS did the repayment obligation become due. The business then needed to make the required payment, which could typically be done through the Electronic Federal Tax Payment System (EFTPS) or other approved payment methods. For businesses unable to pay the full amount at once, an installment agreement may have been an option, but this required a separate application and review process.